As time goes on, some mods continue to switch from neo/Forge to Fabric or become multiloader, when this happens they can no longer use the same icon usually as neo/Forge allows them to use banner (non square) icons. It would be nice to support it at all (squish it or something) so then the icon wouldn't be invalid in modmenu.

Yeah, all Fabric icons are square and Mod Menu is only available for Fabric currently.

As per the fabric.mod.json specification, icons are required to be square. If support for non-square mod images was added, it would probably be through a custom banner field or similar addition rather than incorrectly supporting additional features for the standard mod icon.